No Case For Selling Public Assets

Context: Privatisation of public sector assets to generate resources for government spending is undesirable and unnecessary.

Arguments supporting selling public assets

• It helps to utilise resources lying idle in the economy.
• Increase in demand: due to government spending financed by the sale of public assets.
• Does not increase indebtedness.
• Favoured by global institutions: like International Monetary Fund (IMF).

Arguments against selling public assets

• May scale down investments decisions:  It is only investment decisions that are taken today for fructification tomorrow that may be scaled down by such a purchase; leading to “crowding out”.
  • Selling public sector assets therefore does not “release” any resources from private use for government spending.
• Similar to fiscal deficit: The only difference between a fiscal deficit and selling public assets lies in the nature of the government paper but the macroeconomic consequences are similar.
  • It increases wealth inequality in society: in the following ways -
    • The government expenditure financed by the fiscal deficit creates additional income that will be concentrated in the hands of rich.
    • The public asset it puts in private hands is un- der-priced.
  • Generates an excess of private savings over private investment.
• Undermines the strategic role played by public sector: which acted as a bulwark against multinational corporations’ propensity to arm-twist a third world country.
  • For E.g. Public sector banks provided loans to wider spectrum of the population.

Alternatives to selling public assets: for financing government expenditure.

• Promote tax-financed government expenditure: other than fiscal-financed expenditure.
  • Wealth taxation: Taxing away the private wealth created by a fiscal deficit will leave private wealth inequality unchanged at its initial level.
  • Increase Goods and Services Tax (GST) rates on luxury goods.